Windfall Gains Tax

Executive Summary

In May 2021, the Victorian government announced the introduction of a new Windfall Gains Tax (“WGT”). This is a new tax on a windfall that a landowner is considered to have benefitted as a result of the government’s rezoning decisions.

The WGT is imposed when a WGT event occurs, in short, the time the land is rezoned. When rezoning occurs, on the basis no exemption applies, the landowner becomes liable for WGT on the taxable value uplift. The taxable value uplift is calculated as the difference in the land’s capital improved value prior to and after the rezoning.

The tax will apply for amendments to planning schemes that take effect on or after 1 July 2023 introduced by the Windfall Gains Tax and State Taxation and Other Act Further Amendment Act 2021. There are transitional arrangements in place for certain contracts, option arrangements and rezonings that were underway before the announcement on 15 May 2021.

Introduction

The Victorian government introduced the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 to Parliament, with several modifications from the initial proposal when first introduced in the Victorian Budget 2021/22.

This article aims to touch on the crucial aspects of the draft legislation in relation to the WGT. Please note that the final WGT regime remains subject to change in accordance with revisions made to the draft legislation prior to its enactment. Until then, individuals may consider getting specific stamp duty advice if they have concerns that they may be affected by the WGT regime.

What is a WGT? WGT is incurred by landowners when their property is subject to a government rezoning resulting in a value uplift of the land above $100,000.00.

Definitions 1

Rezoning: This means an amendment of a planning scheme that causes land to be in a different zone from the zone that it was in immediately before the amendment.

Taxable value uplift: This is the difference in the capital improved value (“CIV”) of the land before and after the rezoning takes effect, less any deductions.

WGT Event: A rezoning that is not an excluded rezoning. The tax is not applicable to land zoned for public places or subject to Growth Areas Infrastructure Contribution (“GAIC”).

1 Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 s 3 (“WGT Further Amendment Act”).

Valuation of the land

The value of the land before and after a rezoning is determined by the Valuer-General Victoria.

Value pre-rezoning: The latest valuation will typically be the valuation reflected in the most recent rates notice issued for the land.

Value post-rezoning: The value is determined through a supplementary valuation certified by the Valuer-General. There is minimal scope for Landholders to oppose a valuation prepared to determine the land’s post-rezoning value.

The valuations will be based on the relevant land’s CIV and considered at the same date.

Who Pays WGT And When?

• WGT is liable to be paid by the owner of the land when the WGT even occurs. If WGT is unpaid (including any penalty/interest), it is a first charge on the land.
• Joint owners are assessed as if there was a single landowner.
• For land held on trust, the trustee is assessed, excluding any land held by the trustee for another trust or for the trustee’s personal benefit.
• Related entities (Companies and Trusts) may be grouped and the assessment for WGT is based on the aggregated taxable value uplift of all the land owned by group members that was rezoned by a WGT event.

Deferment 2

There is an option for landowners to elect to defer up to 100% of the WGT and must be done before

the date the WGT becomes payable. If a landowner makes a late election, it may be accepted

subject to the Commissioner’s discretion.

Deadline 3

The tax will be payable within 30 days of the following (whichever occurs first):

• A dutiable transaction (other than an excluded dutiable transaction) occurs in relation to the
• land; or
• A relevant acquisition (other than an excluded relevant acquisition) occurs in relation to a
• landholder that owns the land; or
• The day that is 30 years after the WGT event.

How Much Is The WGT? 4

Taxable value uplift WGT Payable

Amounts more than $100,000.00 but less than $500,000.00

62.5% on the uplift above $100,000.00

Amounts $500,000.00 or more 50% will apply to the total uplift

2 WGT Further Amendment Act s 31.

3 WGT Further Amendment Act s32.

4 WGT Further Amendment Act s 9.

If an owner holds land with more than one title, WGT is assessed based on the taxable value uplift for all land on an aggregated basis. The WGT is apportioned between each title based on the percentage value proportional to each title of the aggregated total value.

Exemptions 5

Size & Residential Land: Residential land less than 2 Hectares

Residential land is:

• Land with a residential premise that can be used as a residence.
• Land with an issued building permit for the construction or renovation of a
• residence.

Residential land excludes:

• Commercial residential premises
• Residential care facilities
• Supported residential services
• Retirement villages
• Pre-existing Contracts of Sale and Options: This includes projects subject to a contract of sale (or an option) entered prior to 15 May 2021 and the sale has not been completed when the WGT event occurs. For land subject to an option, it is exempted provided the contractual terms have been settled when the option was entered.
• Charity: Land used exclusively and continuously for charitable purposes for 15 years after the WGT event.
• Rezoning errors: Land rezoned to correct obvious or technical errors in the Victoria Planning Provisions or a planning scheme.
• Rezonings underway before 15 May 2021: Such rezonings are exempted if a request for amendment was created and registered in the Amendment Tracking System by Council before that 15 May 2021.

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